It was a rough year for Central Ohio's two largest-ever unicorns, with the monumental collapse of Olive AI Inc. and the financial and legal struggles of Root Inc. — although the latter company appears to have found steadier footing by year's end.
Throughout the industry, local VC firms started the year advising their portfolio companies on how to manage through an expected downturn, then in March went all-hands-on-deck to help startups survive the emergency of the Silicon Valley Bank shutdown, when some couldn't access their own deposits to make payroll.
Related story: Central Ohio's biggest VC rounds and acquisitions of 2023
U.S. tech firms cut more than 250,000 jobs through early December, 55% more than in the same period of 2022, according to Layoffs.fyi. Local workforce contractions included McKesson-owned CoverMyMeds, Veeam, Upstart, Klarna, Beam Benefits and Aware.
In general, tech companies that focus on revenue and control expenses are going to generate better returns, Bill Baumel, managing director of Columbus VC firm Ohio Innovation Fund, said via email.
"Any investment is 'a work in progress' until you exit and distribute – cash or highly liquid securities, which still carry some risk as they need to be sold – to your limited partners," Baumel said shortly after Olive's shutdown. (The firm was not an Olive investor.)
"It's not good to overhype and underdeliver for Ohio," he said. "Celebrate success – but again until exited and distributed to your limited partners, it's a number on paper."
Here's a look back at Central Ohio's two biggest tech developments of the year:
Death of a unicorn
Valued at $4 billion just two years ago in a $400 million funding round, Columbus-based Olive announced Oct. 31 that it was selling the operating parts of its business to two buyers.
Olive had raised $857 million in venture capital since 2013, most of it since 2020, plus a separate loan of more than $100 million from Silicon Valley Bank.
Founder and CEO Sean Lane had a massive ambition to cut one-fourth of U.S. healthcare spending through automation of administrative tasks. An industry analyst and a fellow health IT entrepreneur with a hospital finance background both said Lane grossly underestimated how long that would take and how hard it is to get hospitals to change.
The company hit a peak of 1,400 employees nationwide in early 2022 and announced it would develop a world HQ in Worthington. Then the cutbacks started: 400 jobs cut in July 2022, and another 215 this February. In June Olive canceled the HQ plans. Then JobsOhio sued for not maintaining the level of new jobs Olive pledged in exchange for recruiting and training aid.
Meanwhile, Olive had been selling off business lines since last year, with the final two chunks broken up in October. After a few dozen employees transferred to the buyers, the last 115 jobs were cut. In late November the contents of the company's 99 E. Main St. headquarters were auctioned off.
Purchase agreements and exhibits sent to shareholders, copies of which were obtained by Columbus Business First, showed that divestitures in March and October totaled less than $50 million. Almost all of that went to the SVB debt, leaving no returns for investors. The documents also showed that Lane was a previously undisclosed buyer for Olive's equities in affiliated startups.
"It's always difficult when one of Columbus' prominent tech startups close their doors," Tom Walker, CEO of Columbus-based Rev1 Ventures (not an Olive investor), said in a statement in early November. "Our doors and networks are open for folks who may be looking for their next opportunity, and we hope that our region is able to retain the great talent that Olive has."
Weeks after the shutdown, Lane went public about his new startup via announcements on LinkedIn and promotional videos on YouTube. He has not responded to several messages seeking comment. Lane had incorporated Ghostdog, a search engine tailored to national security agencies, in July in Delaware, registering it in Ohio the same day Olive disintegrated.
Root slows cash burn, contends with embezzlement
Root (Nasdaq: ROOT) was valued at $7 billion in Ohio's largest-ever IPO in October 2020. In the last week of December, its market capitalization was just over $150 million, according to its Nasdaq listing.
The digital auto insurer dramatically cut its cash burn and returned to growth mode by mid-year. Meanwhile, a legal battle was playing out over a former executive who pleaded guilty in November to embezzling $10.2 million from the company.
Root had sued its former chief marketing officer in February, accusing Brinson "B.C." Silver of a "brazen and sophisticated scheme" to funnel advertising dollars through an outside vendor to an LLC he controlled, using the cash to buy oceanfront homes and luxury goods. Auditors found a material weakness in internal controls, which the company said it has addressed.
Back in the downtown Columbus HQ (which is up for sublease), Root fired its CFO in March a month after longtime executive Dan Rosenthal, at the time COO and chief revenue officer, announced he was voluntarily stepping down. Megan Binkley was promoted to CFO to fill out the C-suite.
Meanwhile Root fended off a buyout proposal for pennies on the dollar.
Root still has about $500 million in cash despite continuing but slowing financial losses. The company drastically cut expenses through 2022, and for the past two quarters returned to growth in policyholders. Executives have projected turning profitable sometime in 2024 without issuing stock or taking on more debt.
